The US Court of Appeals for the Federal Circuit affirmed a district court finding of unenforceability, concluding that a patent owner’s unclean hands can render patents unenforceable based on a materiality standard of conduct that had an “immediate and necessary relation to . . . the matter in litigation,” which included conduct with the “objective potential” to affect the litigation. Gilead Sciences, Inc. v. Merck & Co., Inc. et al., Case No. 16-23102; -2615 (Fed. Cir., Apr. 25, 2018) (Taranto, J). 

The case involved two Merck patents related to Hepatitis C treatment. Gilead, which had developed its own Hepatitis C treatments, sought declaratory judgment that the Merck patents were invalid. Merck counterclaimed. The jury ruled for Merck and awarded damages. Thereafter, the district court held a bench trial on Gilead’s equitable defenses, including unenforceability of the patents based on Merck’s unclean hands. The district court ruled in favor of Gilead, concluding that both pre-litigation and litigation misconduct attributable to Merck rendered the patents unenforceable. Merck appealed.

The Federal Circuit affirmed, applying a deferential standard of review of the lower court’s findings, and articulated the legal standard for unclean hands. The Court explained that “a determination of unclean hands may be reached when ‘misconduct’ of a party seeking relief has ‘immediate and necessary relation to the equity that he seeks in respect of the matter in litigation.’”

The Court endorsed the lower court’s identification of four instances of “misconduct”—two pre-litigation and two litigation business misconducts—and its finding that the conduct had immediate and necessary relationship to the equity that Merck sought to enforce its patents.  

The two pre-litigation misconduct incidents stemmed from Merck’s interaction with Pharmasset, which was later acquired by Gilead. Pharmasset had developed PSI-6130 (the compound that led to Sofosbuvir, the active ingredient in Gilead’s Hepatitis C treatment). Pharmasset had agreed to allow Merck to evaluate PSI-6130 with the understanding that anyone involved in Merck’s internal Hepatitis C virus program would be excluded from the review. Merck, however, sent its patent counsel, Dr. Durette, who was involved with Merck’s Hepatitis C program, to attend a call discussing PSI-6130. After the call, Dr. Durette continued to prosecute Merck’s patents, including the applications that became the asserted patents.

The Federal Circuit found Dr. Durette’s participation in the call with Pharmasset and his continued prosecution of the asserted patents to be two instances of pre-litigation business misconduct attributable to Merck. The Court explained that the improperly acquired knowledge influenced Merck’s decision to file narrower claims, with the attendant potential for expedited patent issuance and lowered invalidity risk, which led directly to the acquisition of the asserted patents and thus was immediately and necessarily related to the equity of patent enforcement relief sought by Merck.

The two instances of litigation misconduct arose from Dr. Durette’s testimony and were found to be attributable to Merck. First, Dr. Durette testified during his deposition as Merck’s corporate witness that he did not participate in the call with Pharmasset, which he later conceded was false and which the district court found to be intentional. Second, Dr. Durette downplayed the effect of the Clark application (Pharmasset’s patent application containing PSI-6130’s structure published after the Pharmasset call but before the narrowing amendment), which the district court found “not credible” and “false.” The Federal Circuit explained that the district court had properly charged Merck with the consequences of Dr. Durette’s false testimony and that the testimony was relevant to the invalidity issues (i.e., whether the claimed inventions were derived from Pharmasset’s Clark application) and had an immediate and necessary relation to the equity of patent enforcement relief sought by Merck.

Practice Note: Patent prosecutors should ensure that they do not violate any firewalls, protective orders or agreements, and further should not continue prosecuting patents in the same subject matter after inadvertent (or, of course, deliberate) access to the confidential business information of others.